Average – not exactly the grade of anyone’s dreams. So what happens if you find out you have an average credit score? You get to work improving it. While an average credit score won’t give you the best financial opportunities, there are tools you can use to improve it. Plus, with an average credit score, a few small changes can make a huge difference.
While an average credit score won’t give you the best financial opportunities, there are tools you can use to improve it. Plus, with an average credit score, a few small changes can make a huge difference.
What is an average credit score?
Before you can get your average credit score into the excellent range, you need to know what falls under that criteria.
First off, if you haven’t check your credit score recently, now’s the time. What’s more, you can get your credit score for free. When you check your score, you’ll likely want to pay attention to the three-digit number you see. However, you should pay more attention to the actual range your score falls into.
Remember, since everyone has multiple credit scores, that credit score number will vary. But, the credit score range is what can really help you understand where you stand.
Here are the ranges for the two most popular credit scores, FICO and VantageScore, as illustrated by Experian:
Given that there are so many credit scores, it can be hard to nail down what the current average score is. Additionally, there are two major U.S. companies scoring consumers, so there are various versions of each score.
Experian’s most recent annual State of Credit report shows that the average score in the U.S. is a Fair 673 using the VantageScore model.
Meanwhile, FICO has recently reported an average credit score of its most recent model at a Good 700. Suffice it to say, the average credit score in America is somewhere in the high-Fair to the low-Good range.
How your credit score impacts your interest rates
A credit score is important in that it determines whether or not you might be approved for new credit.
Yet, a credit score will also determine the amount of interest you’ll be charged on credit. And even small differences in interest rates can make a large impact on your overall debt repayment.
Take a look at the chart below for an example. The chart shows how much the monthly payment and interest paid will be for a mortgage with a 620 credit score (Fair) and one with a 760 credit score (Very Good).
As you can see, the Fair credit score ends up costing the consumer $93,924 extra in interest over the life of the mortgage. Not to mention the fact that it makes the mortgage $261 more expensive per month.
If you’re in the market for new credit and want to see what you might pay in interest, ask the bank or lender what they’ll pre-qualify you for. That will only require a soft pull on your credit, so it won’t hurt your score at all.
When they do the pre-qualification, they’re going to show you the lowest interest rate they think they can potentially offer you. This is a good way to see if their low-interest rate is in fact too high for you.
And if it is, follow the steps below to give your credit score a boost so you can apply again later with a stronger score.
How to turn an average credit score into an excellent one
While FICO and VantageScore are different, the factors they use don’t vary much. That makes it a lot easier for you to focus on a few small steps to improve your credit score.
Below is a chart explaining the factors that make up your FICO credit score and your VantageScore. And below that, how you can use these factors to boost your score.
1. Pay down debt
The amount of debt you owe is the second most impactful factor on both scores. And both prefer a credit utilization rate of 30 percent or below.
In other words, make sure your credit card balances don’t make up more than 30 percent of your credit limits. Pay down debt as much as you can – especially revolving debt.
2. Pay off accounts in collections
Accounts in collections are very damaging on your credit score. And, although they stay on your credit report for years, you can’t start the clock on removing them from your credit report until you pay them off.
If you have accounts that are in collections and don’t know how to pay them off (or who even has them anymore) get your credit report at AnnualCreditReport.com. There you’ll see the name of who’s servicing them. Contact your servicer to set up a payment plan.
3. Pay all of your bills on time every single month
Finally, the most impactful factor in your score: your payment history. There’s nothing you can do better for your credit score than to pay on time every month.
It’s important to note that late payments on non-credit accounts can still be reported on your credit report. So even a late cell phone payment or medical bill can hurt your score.
You have the power to change your score
Whatever your credit score is today, it won’t be that way forever.
By taking care of any negative items that might be dragging your score down and creating positive habits like always paying on time, you can start to see changes in your credit score in as little as three months to two years.
All you have to do is get started today. The sooner you do, the sooner your score will go from average to excellent.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.51% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|